Partial ECM exit to leave Deutsche Bank focused on Europe

LONDON/HONG KONG (Reuters) - Deutsche Bank (DBKGn.DE) is focusing its equity capital markets (ECM) business such as initial public offerings (IPOs) on Germany and Europe, scaling back in the United States and retreating from most of Asia, banking sources said.

The headquarters of Germany's Deutsche Bank are photographed in Frankfurt, Germany, July 8, 2019. REUTERS/Kai Pfaffenbach

Germany’s largest lender said on July 7 it would retain a “focused” ECM franchise as well as U.S. and European equity research teams as part of a 7.4 billion euro ($8.3 billion) shake-up which all but ends its ambitions on Wall Street.

The bank’s “reinvention”, which is expected to lead to 18,000 job cuts by 2022, includes the closure of all of its equities trading and cutting some parts of its fixed income operations.

Deutsche Bank’s plans to shrink its ECM business, which involves raising money for corporate clients on the world’s stock markets through IPOs and private placements, has left some bankers questioning how it can still compete.

Its franchise is already under pressure. In the first half of 2019, Deutsche Bank ranked 13th in the league table for global equity capital market deals, down from ninth place in the same period a year ago, Refinitiv data shows.

But in its home market, Deutsche Bank was third biggest in terms of fees in 2018, lagging its U.S. Wall Street rivals JP Morgan (JPM.N) and Goldman Sachs (GS.N), the data shows.

ECM league tables can be volatile given there are often large swings in IPO volumes from year to year, with revenues from such activities at investment banks already suffering from reduced issuance and fee pressure..

However, Deutsche Bank’s ECM practice made up just 3% percent of its total investment banking revenue last year and sources said a fall in proceeds would not hit its bottom line.

Deutsche Bank has already axed a number of ECM banking roles in Asia, Europe and the United States since Chief Executive Christian Sewing announced his overhaul, sources said.

VANISHING UNICORNS?

Jason Cox, the Asia-Pacific head of equity capital markets was laid off and teams were disbanded in Japan, Australia and most of Asia, sources have previously said.

At least three members of the London team lost their jobs on Monday, sources said, and the roles of global head of ECM and global head of equity syndicate, responsible for researching and marketing IPOs, remain vacant.

And teams could gradually be reduced further, the sources told Reuters, with a likely knock-on effect.

“The very small ECM team that we will have globally after this will mean that we won’t get senior roles in any of the IPOs,” a senior Deutsche Bank investment banker in Asia said.

“So if a company in London or a unicorn in China is looking to do an IPO, they would not look at Deutsche as a lead, nor will we pitch for that role,” the senior banker said, adding that the bank could still pitch for junior roles in some deals.

In the United States, it will continue to work on sectors that it deems strategic, a source close to Deutsche Bank said.

The underwriting role it secured in the IPO of U.S. electric bus maker Proterra, was helped by the bank’s relationship with auto investors in Europe, another source said.

Over the past year Deutsche won global coordinator roles for IPOs including Volkswagen’s truck unit Traton (8TRA.F) and luxury car maker Aston Martin (AML.L), and bookrunner roles in the IPOs of ride-hailing giant Uber Technologies (UBER.N).

It also has a global coordinator role on the IPO of brewing firm Anheuser-Busch InBev NV’s (ABI.BR) Hong Kong arm Budweiser, which on Friday delayed pricing the flotation.

There are also more deals in prospect, with Deutsche Bank securing roles in up to 10 which should happen in the next 12 to 18 months in Europe, a third source said.

Additional reporting by Joshua Franklin and David French in New York; Editing by Alexander Smith